Is Latin America Prepared for China's Booming Tech Investments?

As China fuels innovation in the region, countries must prepare to mitigate the risks.

While the U.S. and allies distance themselves from Chinese tech companies such as Huawei, China has become Latin America's top investor of its boomingtechnological sector. Tencent invested $180 million in Latin America's top unicorn company, Brazilian fintech firm Nubank. Large Chinese companies have acquired local startups, such as Didi Chuxing purchasing Brazil's 99 Taxis and initiatives such as Chinnovation, which pairs up Latin American and Chinese tech investors, signal this trend will only increase. Even Baidu’s discontinued $60 million fund for Brazilian startups last year, left the country saying they intended to continue to invest but directly from their home front.

Chinese investment in regional companies has been accompanied by deep penetration of its own firms. Telecommunications companies such as Huawei and ZTE have largely integrated into the region. Noticias Águila, Mexico's most downloaded news app, was created by a Shenzhen-based company. Huawei is one of the top contenders to build a fiber-optic cable connecting Chile to Asia, is already building one connecting Sinaloa to Baja California Sur in Mexico for $14 million, and like Alibaba will be competing with Amazon by setting up data centers in Chile.

Possible risks

Where Chinese companies go, allegations of espionage, hacking, and unscrupulous business practices usually follow. In Poland, a senior Huawei employee was arrested in January for allegedly spying on the Polish government. In the UK, the British government found evidence that the company’s telecommunication equipment could be compromised. Despite the risk, Huawei is the contractor of choice to build digital infrastructure like 4G mobile networks across a broad swathe of Latin America.

The complex nature of telecommunications means changing suppliers is easier said than done once a company builds your mobile network. This over-reliance means that Huawei can afford to drag its feet in addressing the security concerns of governments. Indeed, after the UK raised issues with the security of the equipment, the company said it would take five years to address the country’s concerns.

Furthermore, companies such as ZTE have exported surveillance technology to Bolivia, Ecuador and Venezuela. While these systems are geared towards natural incidents and cutting crime, they can lead to breaches of citizens' private information, increased censorship and new tools for authoritarians. In Venezuela, ZTE is helping the Maduro's government build a national identification system that can help the embattled government crackdown on dissent.